College finances in a rapidly changing sector

State regulators have placed Central State University on fiscal watch, Mike Duffey, chancellor of the Ohio Department of Higher Education, announced in late October.

The move comes after Central State “recently made ODHE aware of financial challenges at the university,” according to the state agency. Earlier this year, the historically Black public university forecasted a significant budget shortfall.

Under fiscal watch, state financial reporting requirements will ramp up for the university. The designation also requires a state auditor evaluation, as well as other measures “designed to stabilize and improve the financial outlook of the university,” ODHE said in an Oct. 25 press release.

In a statement, Ohio Gov. Mike DeWine said he met with Central State President Morakinyo Kuti and Board Chair Jacqueline Gamblin, who agreed with Duffey on the need for a state fiscal watch.

“As the only public HBCU and one of only two land-grant universities in the state, Central State and its students are a unique and important piece of the higher education landscape in Ohio,” DeWine said.

Central State’s expenses ballooned by almost 31% between 2020 and 2022, according to its latest financial report. They reached $96.9 million in fiscal 2022, more than twice the university’s operating revenue that year. 

In March, university leadership told employees that Central State faced a $4 million budget shortfall — amounting to 6% of its budget — and was considering layoffs to help close its financial gap, according to media reports from the time. 

Alex Johnson, then-interim president of Central State, attributed the deficit to overspending when the university received federal funds for COVID-19 relief. 

In fiscal 2022, Central State logged $28.4 million in revenue from federal funds tied to the pandemic. A number of colleges around the country have been struggling financially as that funding has run out. 

But unlike many colleges facing budget shortfalls, Central State’s enrollment has increased in recent years. In fall 2022, the university enrolled 5,434 students, up by more than 1,400 from 2020, according to federal data. At the same time, net tuition revenue jumped by $4.7 million, to $12.1 million, between fiscal years 2020 and 2021 though it then dropped to $10.5 million in 2022.

While on fiscal watch, Central State will be required to share quarterly financial reports with its board of trustees and ODHE. It will also develop a financial recovery plan meant to “outline a path toward financial stabilization with a goal of ending the fiscal watch within three years,” according to Friday's announcement. 

Along with an evaluation, the state auditor’s office will provide support to the university, including technical expertise and strategic guidance to help with budgeting, financial accounting and reporting.

“We are continuing to take action to ensure we manage our way through this fiscal watch period and address what’s necessary to ensure a bright future for our students, faculty, and staff,” Kuti said in a statement.

Connecticut Gov. Ned Lamont has requested a state audit into the Connecticut State Colleges and Universities system after a news investigation found the system’s chancellor spent public money on pricey meals and chauffeurs. 

During his three-year tenure, Chancellor Terrence Cheng has often put expensive meals on his state-funded credit card , including $1,114 at restaurants during one week in September 2023, CT Insider reported in late October. Cheng has also occasionally used chauffeurs, including $490 in one day in November 2022, the publication found. 

In an Oct. 25 letter, Lamont urged Connecticut’s state comptroller office to review the community college system’s spending, including expenses related to meals, entertainment and travel. He also asked for an itemized report of purchases made with p-cards, which refers to purchase cards employees can use for institutional expenses. 

The CT Insider investigation also found several examples of Cheng’s spending that may have broken state rules or institutional policies, including expensing alcohol and missing some receipts. Cheng told the publication that the potential violations were clerical errors and defended his credit card spending, arguing that the activity was part of establishing relationships that could benefit the system. 

The probe into the chancellor's spending comes at a time when the system is raising tuition and grappling with cuts.

In early 2024, CSCU rolled out a voluntary buyout program to help address a $140 million deficit, though a faculty union said in March that its members would refuse to participate. The system’s governing board also approved a 5% tuition hike across all but one of its institutions over vocal opposition from students and faculty. The increase took effect this fall.

“Recent reports of controversial spending decisions have raised serious concerns about the transparency and accountability of CSCU’s financial management,” Lamont said in a statement Friday. “As CSCU has recently implemented measures such as tuition increases and program reductions to address significant budget shortfalls, it is imperative that the public have complete transparency into how public funds are being utilized.”

The network’s system office is ready to help the state’s comptroller office by providing any requested information or documentation, Adam Joseph, the system’s vice chancellor for public affairs, said Oct. 29 in an emailed statement. 

In the meantime, the system’s governing board has increased its oversight of spending within the system’s central office, and the network will soon hire a new chief compliance officer and legal counsel. 

“Once they are on the job, Chancellor Cheng will instruct both individuals to initiate a review of CSCU’s p-card and travel policies,” Joseph said. 

He added that the system is “committed to the responsible use of state funding,” noting that the central system’s office and shared services division lowered their spending by about $12 million in fiscal year 2024. 

As part of the audit, Lamont requested that the comptroller’s office review how state-owned vehicles are used by employees, including looking into their fuel costs. He also asked that the probe assess whether public money is being managed in a way that aligns with state policies. 

“It is critical that the public have confidence in the financial stewardship of the CSCU,” Lamont wrote in the letter to the state comptroller's office. “Students, faculty and the citizens of Connecticut deserve to know that the public resources are being used appropriately.”

Cheng did not respond to an emailed request for comment on Oct. 29.

In response to CT Insider’s investigation, Connecticut State Senate Minority Leader Stephen Harding, a Republican, blasted Cheng’s spending habits. 

“The tone deaf champagne tastes of Chancellor Cheng are not a good look for the chancellor or for the CSCU system,” Harding said in a statement. “It should frustrate anyone who reads about it. It smacks of arrogance and disrespect for taxpayers, students, and students’ families alike.”

The system has two- and four-year institutions spanning over a dozen campuses.

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Offering installment payments is a popular way to resolve past-due balances on student accounts, but doing so may put higher education institutions in the position of a lender extending credit to students under state or federal law. While helpful to students and the institution, repayment plans for overdue balances introduce regulatory and compliance considerations.

Colleges and universities are likely not used to considering themselves to be regulated financial entities, and as a result may find that crucial policies or processes are non-existent or need significant updates.

The details of how, when, and what is communicated to students about amounts owed and repayment options is key. Regulators are increasing their scrutiny of payments in higher education, and the guidance they have provided around payment plans and student loan collection provides a good resource for determining best practices.

Colleges and universities need consistent and standardized communications to students with past-due balances, including the timing, phrasing, formatting, and delivery of messages. A student-friendly approach can be compliant with regulations, while also leading to higher account resolution rates and better student outcomes. The following are best practices for communicating with students about their past-due accounts:

Proactive communications

When it comes to resolving past-due accounts, timing is crucial to success. The earlier you can get in contact with a student to notify them of past-due bills, and the earlier the student start making payments, the more likely the balance is to be resolved. Consider reaching out to students before the add-drop period to help them remain current

Compliant communications

Many institutions do not have formal policies for outreach regarding past-due tuition and fees. Institutions should explore adopting robust policies in this area, which take into account guidance from regulatory bodies like the Consumer Financial Protection Board (CFPB) and the Department of Education related to payment plans and student loans.

When regulators review communications, they look at how institutions communicate past-due balances, any repayment plans, notifications around deadlines, and other pertinent information regarding a student’s account, including guidance on resolution.

Review your delinquent account outreach process with your institution’s general counsel to ensure compliance, a critical step that only 40 percent of institutions are currently completing. Achieving compliant communications is not only a safeguard for an institution but a catalyst for creating the best experience for students.

Clear and consistent communications

Clearly communicating financial responsibilities to students is an overriding priority when developing your past-dues structure and process. Transparency about collections procedures and repayment plan details builds trust and understanding between students and the institution, and can help with compliance. It also reduces miscommunication that can lead to errors and frustrations. Remember that regulators look at students as being at particularly high risk of not understanding financial transactions, given that they are often young adults who are just gaining experience in this area.

Make sure all interactions are clear about what a student owes, repayment options, and the financial commitments associated with each option. Be consistent in both the content and cadence of your messages, sending communications on a regular schedule and ensuring that the terms and conditions are communicated.

Consistent outreach strategies can greatly help with efficiency and productivity, too. Institutions waste valuable staff time when, for instance, they create one-off letters rather than using approved templates. An organized communications process will support students and staff better than an irregular outreach schedule.

Relevant and digestible communications

To communicate effectively, you must know your audience and adjust your message to best influence them. Meet today’s students where they are, communicating through their preferred channels and speaking to their level of financial knowledge. Rather than phone calls, today’s students may prefer text messages. And rather than assuming financial savvy, educate students on financial literacy so they can understand accounting terminology and better manage the responsibilities of paying off their balance. Always keep communications as easy to read as possible.

Compassionate communications

Negative experiences hinder recovery, recoupment, and retention. For compliant communications to be successful, they must also be compassionate toward students and their situations to create a positive experience for them. A sensitive approach reduces students’ stress, builds their trust, and can help make your message more effective. Similarly, having trained, compassionate staff available to answer questions and calls can give students a better experience. Compassion and clarity also drive fewer students complaints, whether to the school or regulators.

Improved interactions drive operational effectiveness

With the right communications in place, your campus can increase operational effectiveness and maintain compliance, while helping students to successfully manage their financial responsibilities and make progress toward graduation.

Many colleges and universities would like to avoid sending students to collections while improving their outreach to students with overdue balances, but cannot because of lack of resources. These institutions could benefit from a proven, compliant account management program focused on recovering overdue payments.

Technology like ECSI's RecoverySelect automates outreach, provides robust reporting, and ensures a soft-touch account recovery approach for students – all without sending students to a collection agency. The result is staff have more time to focus on current students, while knowing their outreach processes are working to support and retain students with past-due accounts.

Average net tuition and fees for first-time, full-time students at private nonprofit colleges increased about 2% year over year to $16,510 for the 2024-25 academic year when adjusted for inflation, according to a study released Oct. 21 by the nonprofit College Board. However, that remains well below levels seen over most of the past two decades. 

At public four-year institutions, average net tuition and fees for in-state first-year students attending full time declined by 2% to $2,480 when adjusted for inflation. As with private colleges, net tuition and fees in 2024 dollars remain well below levels seen before the 2020-21 year. 

Net tuition and fees for full-time, first-year students at two-year public colleges dropped about 3% to -$710, meaning students received aid packages larger than the sticker price. That figure continues a frequent history of negative net tuition and fees at community colleges since 2006-7, the earliest year in the study.

While rising sticker prices for college tuition catch eyes, many institutions in recent years have had to discount heavily with institutional aid as they compete over a shrinking pool of traditional-age college students. 

For all of the institution types above, grant dollars per student remained flat from the previous academic year and well above what they were in the late aughts, when accounting for inflation. 

Meanwhile, sticker prices rose for every category of institution for the current year before adjusting for inflation, according to the College Board’s findings. 

At private nonprofits, sticker prices were up 3.9% from last year before inflation. Their average sticker price for tuition and fees — $43,350 — was more than two and a half times their average net price.

“Changes in sticker prices tend to garner the most media attention,” the study’s authors noted. “However, it is important to note that most undergraduate students do not pay the full sticker price.”

The net tuition prices students pay vary depending on their economic background and choice of college. At very selective four-year public institutions in 2019-20, for example, 79% of students from families with less than $40,000 in income received enough grant aid to cover their tuition and fees, per the report. 

At very selective private institutions, 47% of students with similar backgrounds received enough aid to cover tuition and fees, as did 41% at private institutions with open enrollment.

The total net cost of attendance in 2024 dollars — which includes housing costs as well as projected expenses for things like transportation and books — increased in 2024-25 at two-year and four-year public institutions as well as private colleges. 

Driving the sluggish pace of net tuition pricing in part is the enrollment landscape. Between 2019 and 2022, total enrollment declined by 12% at public two-year institutions, 2% at four-year publics and 1% in the for-profit sector, while enrollment remained roughly flat at private nonprofits, according to College Board’s analysis of federal data. 

“Enrollment changes have a direct impact on tuition revenues and the financial health of institutions,” the report noted. “Due to enrollment challenges and the end of Covid-19 relief funding, several colleges have announced cuts to programs and majors, and a number of small private colleges with low enrollments have closed.”

Pressure on college finances is intensifying despite modest enrollment growth this fall, slowing inflation and other tailwinds for the sector, according to a recent analysis by Fitch Ratings.

In an Oct. 11 release, Fitch noted that while most of the colleges it rates have stable financial outlooks, it has increasingly lowered outlooks for colleges in recent quarters — which could portend more credit downgrades ahead. 

Sectorwide, the ratings agency has a negative outlook for higher education, a now multiyear trend, Fitch senior director Emily Wadhwani noted in an Oct. 10 webinar. “We do expect the sector to yield generally softer operating margins and continue to show some strains on financial flexibility as we head into 2025,” she said.

Fitch pointed to some of the key challenges for colleges at the moment, among them “highly variable” demand for higher education and institutional costs that remain elevated and growing despite easing inflation. 

Looking at broader economic trends affecting the sector, Wadhwani noted in a presentation that cooling wage and employment growth could be a double-edged sword for higher ed. 

On the one hand, it could stimulate demand for education and pad operating margins for institutions by slowing employee salary growth. At the same time, slowing consumer spending and rising household debt-to-income ratios could “squeeze household tolerance and capacity for additional student loans,” she noted. 

Also weighing on demand are increasing questions about the value of a college degree. Fitch pointed to recent Pew Research Center polling that found 29% of surveyed U.S. adults said a college degree wasn’t worth the cost. Moreover, Fitch cited a decreasing share of recent high school graduates currently enrolled in college since 2019.

Wavering demand for college has kept net tuition prices in check. “Discounting is at its steepest for every incoming freshman class, which then becomes a trailing reference point as those students head towards graduation,” Wadhwani said in a statement.

Net tuition revenue is expected to see a median increase of over 2% in 2024 for both public and private institutions. However, net tuition growth has been slowing and is well below the roughly 8% median increase for the public sector and 4% median uptick for the private sector seen in 2012, according to Fitch. 

All of those challenges factor into Fitch’s negative view of the sector overall. Moreover, the agency’s changes to outlooks for individual institutions this year — which can foreshadow possible ratings downgrades and upgrades — have been “decidedly negative,” Wadhwani said in the webinar. 

Specifically, Fitch has negatively revised outlooks for seven institutions while revising them upward for just four. 

However, institutions aren’t feeling the pressures equally. 

“Some flagship public institutions, selective private institutions, and HBCUs are achieving record enrollment numbers,” Wadhwani said in a statement. “Conversely, many smaller, less selective colleges continue to see their enrollment decline.

With enrollment trends improving and state appropriations increasing, the community college sector has reason for “optimism,” according to a recent report from S&P Global Ratings. 

For 2023, median full-time equivalent enrollment, at 5,439 students, was down just 0.3% from 2021 and up nearly 8.1% from the previous year, S&P found among the roughly 200 community colleges it rates. That comes after enrollment in the sector fell 7.7% year over year in 2022,.

Meanwhile, median state appropriations per FTE student for the sector increased 19.1% to $4,930 between 2021 and 2023, analysts found.

Community colleges are “showing signs of rebounding” following the operating and financial challenges of the pandemic, S&P analysts said. 

According to S&P, fall 2022 brought an uptick in enrollment at community colleges across most credit ratings. Other research has shown the increases continuing. May data from the National Student Clearinghouse Research Center pointed to a 4.7% year-over-year enrollment increase at community colleges this spring, an addition of about 200,000 students. 

The spike accounted for almost half of the higher education sector’s headcount gains during the period, even though community colleges make up only a quarter of overall enrollment. 

The increases have helped community colleges regain ground lost during the pandemic, which brought steep drops in enrollment. 

Despite the improvement, S&P pointed to demographic trends — namely a declining population of high school graduates — that continue to present enrollment challenges. In addition, prospective students are facing issues such as financial hardships that prevent them from attending, the left-leaning think tank New America has found.

Community colleges have felt financial pain, including federal pandemic relief funding running dry. Yet their operating margins have remained relatively stable, S&P analysts noted. 

Specifically, margins declined just 70 basis points year over year to 6.7% in 2023, after rising slightly the previous year, according to S&P. Liquidity has also increased across the community colleges' S&P rates, which analysts attributed to increased state funding and “prudent management.”

PHILADELPHIA — Sometimes it takes a closure to remind us just how public a private college’s institutional importance actually is. 

This year has seen the winding down of several historic private colleges, including Wells College in New York and Goddard College in Vermont. Announcements of their closures sparked shock, grief and dismay. 

Arguably, the most dramatic closure came at the University of the Arts in Philadelphia. 

In June, the nearly 150-year-old institution’s life came to a sudden, shocking end when it shuttered with just a week’s notice. The event is still reverberating in the city to which UArts belonged, its closure a public trauma. The announcement sparked protests, media and legal investigations, multiple lawsuits and other legal actions, and the swift departure of the university’s top executive.

UArts may have shared many of the same financial travails as other private colleges around the U.S., but also like those others, its life was singular. And replacing it or filling the gap, or somehow reviving it, won’t be easy. 

UArts and its historic campus sit in the heart of Philadelphia’s arts district. Today it stands vacant but for security staff. Its loss is the city’s as well, given the university’s active, long-running role in Philadelphia’s arts world. 

“The city is going to be lamer in 15 years,” said Daniel Pieczkolon, president of United Academics of Philadelphia — which represents UArts faculty and staff — and a professor at Arcadia University, located in a suburb near the UArts campus. “Philadelphia has a great arts culture. UArts is not the sole reason for that, but it is emblematic of it.”

While the city learns to live without UArts, and its legacy lingers in a sort of higher education limbo, the battle over its closure goes on, with various stakeholders fighting for money — and answers. 

They pulled the carpet out

Bradley Philbert, a former UArts lecturer and a UAP official who helped negotiate with the university, described a sense of relief among faculty.

Yearslong negotiations had culminated in the union’s first faculty contract in February. And now an enrollment crunch seemed to be behind the university — with a strong incoming student population for the 2024-25 year. 

Still, overall numbers were down after some tough years for a college heavily dependent on tuition. Between 2017 and 2022, fall headcount declined 29.4% to 1,313 students, according to federal data.    

In October 2023, Walk held a meeting with the university’s top leaders, including deans, in which she discussed serious financial issues, according to an August report from Philadelphia magazine. But in the months following, the deans received no major updates on the institution’s financial situation. 

In other words, Walk’s silence combined with the sunny enrollment numbers gave deans at the meeting reason to think things were looking up. And no one in the rank and file had any idea permanent closure was just around the corner.

Yet it was. And a brooding question mark still hangs over the university’s collapse. 

The public releases announcing the closure were conspicuously short on details. A statement from Walk and UArts board Chair Judson Aaron on May 31 alluded, vaguely, to “a cash position that has steadily weakened” that meant the university could “not cover significant, unanticipated expenses.” 

They added: “The situation came to light very suddenly. Despite swift action, we were unable to bridge the necessary gaps.” 

Today, the public doesn’t know much more than that, at least not with any certainty. Philbert pointed to water maintenance issues in the university’s Terra Hall, a building originally built in 1911 as a Ritz Carlton hotel, but nothing amounting to an institution-killing expense.

The university’s most recent financials date back to the fiscal year that ended in June 2023. They show a total operating deficit of about $12 million, a sharp drop from the more than $1 million surplus the prior year. The swing to an operating loss followed a decline of more than $4 million in tuition revenue and a roughly $5 million dip in revenue from government grants. 

Meanwhile, at $3.9 million, the university’s available cash was roughly half what it was the year before, even after it began drawing on a line of credit. 

The dizzying speed from announcement to closure and the lack of transparency has led to widespread, lasting anger. How could a sudden, dire shortfall of cash just appear? If leaders truly didn’t see financial implosion looming, why didn’t they? And if they did — why didn’t they tell the campus community?

“Somebody lost their moral compass in letting the school fall to its demise right now,” said Carol Moore, a former associate dean at UArts and founding director of its fine arts master’s in studio art. “It feels like a total abandonment. It didn’t happen overnight.  The decision to abandon it with seemingly no sense of conscience or responsibility is what makes it so tragic.”

Or, as Jared Blando, a freelance illustrator and UArts alum, put it, “They pulled the carpet out from pretty much everybody.” 

‘All of Philadelphia deserve answers!’

They came with rolls of tape and dozens of flyers bearing a headshot of Aaron. In all capital letters, the flyers noted, “UARTS BOARD CHAIR JUD AARON LIVES IN YOUR NEIGHBORHOOD.”

The flyer went on to state — in red and black type for emphasis: “He CLOSED the University of the Arts & laid off hundreds of staff & faculty with ONE WEEK of notice! When the Faculty & Staff asked for financial information, the UArts lawyer said it ‘does not exist.’”

This was roughly the fourth time UAP members had posted flyers in Aaron’s neighborhood since the institution shuttered. Over the next half hour or so, the former faculty and staff taped the flyers to lampposts and street signs, put them on car windshields, and otherwise posted them to just about any available open surface where they might be seen. 

Aaron did not respond to messages requesting comment sent through the university and its attorneys.

Charis Duke, a staff accompanist for UArts before it closed, entered a barbershop to ask if she could tape a flyer on the outside window. With permission secured, she headed back out, stopping briefly to try to comfort a child crying in anticipation of a haircut: “You’re going to do great!”

Duke said that she loved her job at UArts but saw problems in the institution and with the effectiveness of its administration, issues she said drove staff and faculty to unionize in recent years. 

In public statements, including on the flyers, the union has placed blame for UArts’ closure squarely with management. 

As the union members discussed future union actions following the afternoon's flyer-hanging, a man stepped out of a BMW SUV and studied one of the flyers they had posted. 

“Are you doxxing this guy — is that what you’re doing?” he asked the group.

Several people jumped in at once to answer him, arguing that the flyers didn’t include Aaron’s address or contact information and therefore didn’t qualify as doxxing. 

After some back and forth, and explanations of Aaron’s role in UArts’ closure, the man told the union members, “Get a life,” and got back in his car.

“UArts was our life!” one of the union members shouted back. 

‘There’s all kinds of uprooting’

During negotiations with the university in recent months, UAP has asked for minutes from board meeting discussions about the closure and other documents that could shed light on what led to the decision. So far, the university hasn’t provided those.

Another potential vehicle for both answers and compensation is a class-action lawsuit filed in June under federal labor law. The complaint alleges UArts did not provide sufficient notice to employees about job losses. Through the lawsuit, former UArts employees are seeking 60 days’ worth of wages and other benefits.

The lawsuit, were it goes to pre-trial discovery, could produce answers about who in the university’s administration knew what — and when they knew it. Philbert also pointed to reviews at the city and state level, including by Pennsylvania’s attorney general, that could provide information about the university’s last days.

The university's bankruptcy, filed in September, could complicate efforts to get payments for laid-off faculty and staff. 

Potential claimants from the lawsuit were listed among the university’s unsecured creditors, who in a typical bankruptcy would be paid after secured creditors. Secured creditors in UArts’ case include bondholders and lenders whose claims against the university are secured by its property holdings.

Compensation is no small matter for employees. Because the closure came so abruptly and so late in the academic year, many faculty were left without replacement positions and headed into a fall semester with lost income, noted UAP President Pieczkolon. “It’s very scary.”

As many of the laid-off faculty were working artists, some picked up more work in their arts jobs. Others found teaching work. But Philbert noted that some full-time faculty at UArts — some with decades of experience — are now having to take on adjunct jobs elsewhere, often with fewer hours and lower pay. 

“There’s all kinds of uprooting,” he said. 

Of course, faculty and staff weren't the only ones whose lives were upended. Hundreds of students — with no warning — saw their education plans and often their finances turned upside down. Along with the challenges in finding new colleges to finish their degrees, some suffered immediate financial difficulties. 

In a class-action lawsuit filed by former UArts students in August, plaintiffs said they lost job and educational opportunities at the university, as well as deposits and fees.

One of the plaintiffs, Abby Morehouse, worked as an office assistant at UArts and was slated to be a resident assistant for student housing for the 2024-25 year, which would have come with free housing and meals. 

In addition, Morehouse majored in a theater production program at UArts that was among the few of its kind in the U.S. — and she lost the opportunity to have her work produced in a university-sponsored theater festival. 

Morehouse was just one student among more than 1,000 affected. UArts’ closure brought multiple lawsuits, as well as protests, by students.

Philbert described a day of demonstration during the summer that drew some 1,200 students, faculty and community members, as well as news helicopters and national media attention. 

“This was, briefly, the biggest story in Philadelphia,” he said.

Visuals Editor Shaun Lucas contributed to this story. 

U.S. colleges face a “new normal” and accelerated existing challenges in the wake of the COVID-19 pandemic, including constrained operations and heavy competition, a recent report from S&P Global Ratings found. 

Between 2018 and 2023, operating margin rates fell from 0.8% to -0.1% amid rising costs to colleges, according to S&P. Meanwhile, median tuition discount rates at private colleges rose by more than 5 percentage points, to 44.4%, in that period, putting pressure on college revenues. 

From 2019 through the second quarter of 2024, the ratings agency issued 126 credit downgrades for the higher ed sector, compared to 62 upgrades, per the report.

“In 2020, the pandemic turned up the heat on the low-burning fires already stressing the higher education sector,” S&P analysts said in the report.

That includes long-expected demographic pressures, as the population of traditional-age students declines, leaving the sector to fight over fewer prospects. 

Competition often takes the form of pricing. Although sticker prices continue to climb, institutions often steeply discount with financial aid, both reducing their revenue and complicating the conversation around the value of college.

In a report earlier this year, the National Association of College and University Business Officers found that net tuition revenue per first-time undergraduate, when adjusted for inflation, fell six years out of 10 between the 2013-14 and 2022-23 academic years. The 2021-22 academic year saw the largest drop, with a 5.4% decline.

At the same time, costs have spiked. In 2022, inflation in college operations hit its highest level in more than a decade, according to the Commonfund Institute’s Higher Education Price Index.

Those higher costs have narrowed “the fine line schools walk between keeping the cost of attendance low enough to attract students and still covering their own rising costs,” S&P analysts said. 

Institutions have tried to check rising costs through faculty and program cuts, which continue today, they noted. 

“However, universities require balance here, given the potential for cascading impacts if salaries and benefits are reduced to an extent sufficient to cause faculty strikes,” the analysts wrote, pointing to a 49-day adjunct faculty strike at Columbia College Chicago. 

On top of those structural challenges exacerbated by the pandemic, the advent of COVID-19 created its own unique pressure for institutions, the ripple effects of which can still be felt in some places. 

S&P analysts pointed to the temporary shuttering of campuses; students putting off enrollment; hiring, pension and salary freezes; declines in international student enrollment amid COVID-19 travel restrictions; and the added financial strain of higher interest rates. 

Today, the analysts noted, the impacts can still be seen in smaller first-year class sizes that will take additional years to graduate, as well as sizable investments in mental health and tutoring services for students deeply affected by the pandemic.

Amid ongoing budget deficits and projected tuition revenue declines, George Mason University’s Antonin Scalia Law School is facing a cumulative loss of $38.3 million by fiscal 2025, according to documents presented to the university’s governing board for a Sept. 26 meeting. 

Preliminary figures show that fall enrollment in the law school has increased 18.4% from 2023, to 116 students. However, that headcount is down 27% from 2022 and less than half of the 259 students that enrolled in fall 2021. 

“The dean has been informed that the university wants to find creative ways to address the financial status of this important school,” a memo on the Scalia school’s financial situation noted.

George Mason’s law school has landed some high-dollar, high-profile (and controversial) donor gifts over the years, including $30 million that led to naming it after the conservative Supreme Court Justice and $50 million in 2019 from the estate of a former judge.

The Scalia law school could use more multimillion-dollar gifts now as it struggles to rein in its operating deficits. 

For fiscal 2024, the law school logged a $7.8 million deficit and is projecting a $13.2 million deficit for 2025. And that’s after posting annual deficits of between $3 million and $5.8 million each year going back to fiscal 2020. 

In 2024, tuition revenue declined about 5.8% to $23.5 million while expenses rose by more than $1 million from the prior year. For 2025, the school projects an even steeper tuition revenue decline. 

A proposal shared with the law school dean calls for discharging a $4 million loan to the school in equal increments over three years, as well as spending to cover tuition discounting and operating expenses. 

The above is contingent on the law school breaking even financially at the end of each fiscal year, as well as its ability to grow its revenue outside its J.D. program, reduce operating costs or increase fundraising, according to the memo to George Mason’s board. 

The memo also noted that the school enjoys a “substantial degree of autonomy, with the ability to set tuition rates — with the university board’s approval — as well as make decisions on admissions, enrollment targets, discounting strategy, curriculum and facilities.

The law school has in recent months received $7.6 million in donor gifts, including $5.6 million for its Law and Economics Center’s educational programs for lawyers and judges.

Arizona State University plans to add a tuition surcharge of about $350 for full-time students living on campus starting in spring 2025, the public institution announced Sept. 23.

Arizona State attributed the surcharges and other moves directly to $24 million in state funding cuts to the university approved by Arizona’s government this year. “These necessary actions reflect the continuing lack of public investment from state government for higher education in Arizona,” Arizona State President Michael M. Crow said in a statement.

The university also announced it would close its center in Lake Havasu, located in western Arizona, next summer. The move affects about 225 students and 20 jobs at the campus, according to Arizona State.

Signed into law this summer, Arizona’s cuts to public universities have hit the budgets of its flagship institutions.

At University of Arizona, millions in reductions came as the institution was already working to chip away at a massive budget deficit far larger than and which preceded the cuts in state funding. 

Arizona State’s financial position, on the other hand, is far more comfortable, with surpluses in the hundreds of millions. Still, the university’s total surplus of $341.6 million in fiscal 2023 represented a 16.3% decline from the prior year. 

With the recent actions, Arizona State is trying to cover the losses in state funding, including directly through its students with the surcharge on those living on campus. 

The university wasn’t shy about placing blame at lawmakers’ feet.

“For whatever reason, state leaders want the public universities to be tuition-driven, independently funded and to advance on their own,” Crow said.

Arizona State detailed other impacts of the state funding cuts, which include an $11 million reduction to the base operating funds the university receives from the government. 

Specifically, Arizona State said over 2,600 students could be impacted by state cuts to the Arizona Promise Scholarship Program, which covers tuition and fees for Pell Grant-eligible students. 

Another 800 or more new students will be affected by cuts to the statewide Arizona Teachers Academy, which covers tuition and fees for students who go on to teach in the state’s public schools.   

Arizona State said the fate of the statewide teacher education program is now “uncertain” following funding reductions. 

A spokesperson for Arizona Gov. Katie Hobbs, a Democrat who signed the cuts into law in June, said in an emailed statement: “Facing a $1.8 billion budget deficit she inherited, Governor Hobbs brought together a bipartisan majority to balance the budget without raising taxes while protecting critical services for everyday Arizonans.” 

The spokesperson added that Hobbs “remains committed to partnering with ASU to provide students with a world-class education.”

Arizona’s higher education funding has garnered national attention of late. In a report this year, the State Higher Education Executive Officers Association found that Arizona showed the largest gap between current and pre-Great Recession levels of funding. Adjusted for inflation, the state appropriated $7,103 in higher education funding per full-time-equivalent enrollment in 2023, down 34.6% from 2008 levels, according to SHEEO. 

Arizona State’s release noted that the state provides less than 9% of the university’s total funding, and spends half of what Texas or Florida do per capita on higher education.

A manager of a University of Iowa machine shop diverted nearly $1 million dollars to personal accounts by using the shop’s equipment and staff to work jobs on behalf of a business he owned, according to findings from a state audit. 

The university put the employee, Brian Busch, on paid administrative leave starting in 2021 after becoming aware of a possible conflict of interest and improper activity. It ultimately fired him on Aug. 28 following the audit results.

The report advised administrators to improve communication around conflict of interest disclosures and institute new departmental procedures such as inventory counts and spot checks.

The machine shop in the University of Iowa’s physics and astronomy department provides a host of services for employees and students, including fabricating, machining, part prototyping and more. It aimed to be financially self-supporting and, along with its work on campus, took jobs from external sources including federal and international science agencies, such as NASA. 

In 2018, according to the audit report, Busch approached the department about performing jobs through Xometry, a network of manufacturers that can make custom parts on demand. He pitched the move as a way to keep the shop working on paying jobs during otherwise slow periods.

The university machine shop became a certified Xometry manufacturer in the summer of 2018 and began taking jobs through the platform that fall. 

Of the 636 jobs performed by the university machine shop for Xometry customers between September 2018 and September 2021, 587 were paid out to a business Busch owned, called D3T, according to the state audit.  

That represents about $951,490 paid to Busch’s firm by Xometry, while just $74,639 went to the machine shop. Moreover, Busch failed to disclose his ownership of D3T to the University of Iowa, auditors found.

Busch diverted funds from those jobs into his personal accounts, according to the report. Auditors also found evidence of numerous untracked hours of staff time as well as text messages from Busch offering to pay employees in cash if they left hours unlogged.

For example, in one text the auditors cited, Busch told a shop employee, “Do you have any room in your schedule for some extra time this week I got a cash bonus situation for you.”

The state-level audit has been filed with Iowa’s board of regents, as well as criminal investigators and the state attorney general. 

The university put two other employees on paid leave as it looked into issues at the machine shop. The university terminated one of those employees on Aug. 28. The other left in 2023, prior to the conclusion of the audit. 

University of Iowa said in a statement Wednesday that it is investigating “all potential avenues” to recoup paid leave wages from Busch and the other employees. 

The university also said that, following the audit, the machine shop has updated its record-keeping procedures around job intake and assignment to ensure work is properly documented.

Saint Louis University has laid off 23 staff members as the private Catholic institution tries to balance its budget and, in its president’s words, “sustain SLU’s long-term financial health.”

In addition, the Missouri-based university eliminated 30 unfilled faculty roles and 100 vacant staff positions, President Fred Pestello said in an Oct. 11 campus message. 

In the message to faculty and staff about budget cuts, university officials signaled further personnel cuts will likely be needed to balance the university’s budget in fiscal years 2026 and 2027.

Pestello described the personnel cuts — in six separate administrative divisions and two of the university’s dozen schools and colleges — as a “painful day for the SLU community” but necessary to meet a commitment by the university to reduce expenses by 4% and balance this year's budget. 

The university ran a total deficit of $5.2 million in fiscal 2023 before booking the sale of SLUCare, the university’s medical practice, according to its latest financials. 

In a May budget update, Pestello said the university expected to end fiscal 2024 with a “modest budget deficit” but remained in a “strong overall financial position” going into the next fiscal year, noting that the “financial challenges we face are surmountable.”

At the same time, Pestello pointed to the lingering impact from lower-than-expected first-year student enrollment in fall 2023 and higher tuition discounting for that cohort. He also noted unexpected costs from changes to the university’s research infrastructure as well as to support its international students.

Unlike many institutions undergoing staff and program cuts, SLU’s enrollment has increased overall in recent years, with the 2022 fall headcount of 15,755 students up by more than 1,000 from 2017.  

Still, Pestello noted in his message Friday, “Along with many other universities across the country, we are encountering a number of significant challenges and making difficult adjustments in response.” 

In the Oct. 11 message to faculty and staff, officials said they've paired the cost reductions with increased endowment spending to balance the budget. The layoffs at SLU follow meetings and town halls that included nearly 1,000 faculty and staff, as well as efforts to avoid cutting filled positions. 

Despite those efforts, leaders concluded that layoffs were necessary and that more would likely be coming down the road. 

“Ultimately, we will become an organization with fewer faculty and staff. This means that many of our jobs will change,” the officials said. “We will need to focus our efforts differently, shifting our work to support areas of highest priority.”

For now, the university has 2,600 full-time employees, including 900 faculty and 1,700 staffers. 

As it tries to balance its budget, work groups are currently analyzing administrative functions as well as looking for ways to increase domestic and international enrollment in certain programs.